In a recent commentary, Bernhard Allgäuer, Senior Investment Strategist at VP Bank, outlined why insurance-linked securities (ILS) investors “have reason to be optimistic” heading into the 2025 Atlantic hurricane season, citing elevated risk premia and a favourable technical setup that could support returns.
A key part of that setup lies in the current risk-reward profile of catastrophe bonds. With modelled annual losses for cat bonds currently estimated at 2.24%, Allgäuer explained that the premium being earned significantly outweighs the expected loss.
“The insurance premium for this is currently 6.54 %, which is almost three times the expected loss,” he said. “Compared to corporate bonds, this compensation is extremely attractive. But the premium is also in the upper range compared to its own history.”
FULL ORIGINAL PUBLICATION HERE
